BOSTON – The results are the same but the gap is narrowing as Digital Insight came out on top again in the rankings of Internet banking providers by Celent Communications. The Boston-based research and advisory firm put DI atop for the third year in a row in the small financial institution category ($5 billion and under) but noted that as the industry matures, the differences in both functionality and price are shrinking. Celent studied 11 vendors in detail in the 56-page report and came up with the following rankings: For the small FI's, it was DI, followed by S1 and Online Resources, respectively. In the midsize category, at $5 billion to $20 billion, it was Corillian, Financial Fusion and ALLTEL, in that order. The big FI category had Financial Fusion first, followed by Corillian and then S1. The 11 firms studied were ALLTEL, Corillian, Digital Insight, Financial Fusion, Fiserv, FundsXpress, InteliData, Metavante, ORCC, S1 and Sanchez. Authored by Celent's Alenka Grealish and Meredith Outwater, the study's conclusions were based on interviews with industry experts, vendors' clients and the vendors themselves. "What's striking about this year's findings is the degree to which vendors addressed points of weakness, such as mediocre project management and client responsiveness, during the course of the past year," said Grealish, a retail banking analyst. "Consequently, the spreads between the cumulative ranking for many vendors narrowed substantially," she wrote. The criteria considered were breadth of end-user features, customization and flexibility, scalability, ease of implementation and integration, level of client support, functionality such as eCRM, interoperability and multi-channel support. Digital Insight had a good year, the report said. Besides growing to 1,219 Internet banking clients (about a third of them through acquisitions), the company "is notable for being a profitable stand-alone." The analysts concluded: "Although DI hit a few bumps along the way to profitability, including a small amount of client attrition (less than 5%), conversion hassles and a management reorganization, it remains a distinct leader of outsourced Internet banking solutions." They in particular cited DI's feature/functionality ratings and its response to client demands for "improvements in the basics, such as ease of use, better FI control and a tangible ROI," as well as customer service improvements. DI could face some attrition for not offering an in-house solution (which matters most to the biggest firms, where about 40% of online transactions are handled internally), the Celent report said, but "outsourcing is in vogue these days and we do not expect to see a slowdown in DI's ability to sign on new FI's and expand existing clients." NATURALLY, WE AGREE Digital Insight executives were happy with the conclusions. "After contacting various clients, Celent granted Digital Insight the highest rating possible for client services," said John Dorman, DI's chairman and CEO. He said the report "gives particular prominence to Digital Insight's robust feature and functionality, confirming the breadth and depth of our AXIS platform." Dorman added: "We think this is important for any credit union that is looking to offer online services, whether for the first time or if they are looking to switch vendors. Who has the best feature functionality and who will offer me the best client service?" ORCC's head man said his firm could, too. "We were very pleased that we were cited as a leader among Internet banking service providers," said Matt Lawlor, Online Resources' president and CEO. "There are some areas that we're not as strong in as the others, but we feel very strongly that Internet banking is just a small piece, maybe 10%, of what we do here," he said, noting that ORCC offers such features as connectivity with the more than 60 ATM networks across the country. "Integrated bill payment, our enormous investment in our call center, outbound marketing and CRM offerings, these are the vital areas to credit unions, who we see becoming much more aggressive about deploying services that broaden and deepen their relationship with their members," Lawlor added. "Those are our strengths," he said. Meanwhile, the Celent analysts said there was another factor to consider: "A new breed of competitor – the core processor – is gaining ground." Grealish wrote: "Core processors, with their warm customer base, are becoming a threat to the pure-plays that focus on the small to medium-sized FI markets. Moreover, over the past couple of years, core processors have been gaining ground technologically." Celent studied Fiserv as an example of that and observed that solutions such as its Connect3 middleware help give the big core processor "the following competitive advantages: the ability to implement relatively quickly and painlessly and the ability to provide full synchronization with all Fiserv systems and databases." Fiserv's reaction? "I do believe that core solution providers are moving more and more into the home banking space that used to be dominated by specialty niche providers, and that many institutions, especially those away from the top 2%, are showing preference for those solutions," said Oscar Mireles, senior vice president of technology and business development. Alluding to the "coopetition" that now characterizes the industry, Mireles noted that Fiserv's core processors all offer proprietary Internet banking solutions while at the same time working with the third-party vendors to support their products. "On the other hand, specialty niche providers are also expanding into other areas normally controlled by the core solution vendors, becoming part of the so-called `non-traditional' providers," he observed. "Where are they going? We can only guess." A maturing market may reveal the answer in the next few years, according to the Celent analysts. "The consolidation we predicted last year in the market certainly transpired as several firms were absorbed by their direct competitors," said Outwater, the report's co-author. (Digital Insight's takeover of ViFi was one major example.) "We anticipate additional acquisitions in the industry, yet we expect those to be primarily complementary and therefore not resulting in more platforms being sunset," Outwater said. And, going forward, the growth of Internet banking and its accompanying functionalities show "no signs of abating, making penetration rates above 30 percent likely over the next couple years," Grealish wrote. "A leading indicator of what can be achieved are credit unions," she added, citing penetration rates at some reaching 53% to 67%. "Their high rates are primarily driven by a relatively tech-savvy customer base due to the nature of the primary employer," the study said. As for the bottom line, supply-and-demand economics are hard at work, according to the study's authors. "The cost of the solutions is considered a factor for the small to medium-sized institutions. Interviews with FI's suggest that the U.S. market is highly competitive, and consequently price and value are usually in line," Grealish wrote. "Two factors are ensuring price competition. First, many FI's face budget constraints and are, in turn, forcing vendors to be more negotiable with their prices. "Second, FI's no longer feel the need to make fast decision on new Internet banking technologies. Rather, they are scrutinizing price/value trade-offs." Lawlor, the ORCC chief, would agree. "Cost is obviously important but perhaps a bit less than you might think. For 10 years, our mission has been to provide profitable channels for our clients, and creating volume is crucial to that," he said. "Costs, whether it be a branch system or an Internet solution, tend to be fixed. Serving members better is what will make the difference, through CRM solutions and cross-selling services they want. "Celent knows this, and I give them credit for that. It's not just about Internet banking. It's about the total experience," Lawlor said. -


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